As the economy is slowly improving and house prices ceasing a downward trend, first-time buyers and purchasers of lower-priced properties are lured back to into the market.While the home loan industry maybe operating in an economic climate - with mortgage rates at its lowest level in three decades, possibly indicating short-term economic growth - other increasing household expenses such as large electricity tariff increases and municipal rate hikes, pose increased pressure on consumers and greater risk to lenders. Risk management during tough economic conditions present many challenges, and managing risk was one of Standard Bank’s achievements during the past three years. Funeka Ntombela, Head of Standard Bank Home Loans, says: “Since mortgage finance constitutes an essential product of a retail bank’s customer value proposition, there are longer-term risks of driving mortgage lending on a mono line basis. In essence, mortgage finance should be offered as a portfolio offering.” She says this will mean that liquidity risk attached to term assets is a more significant risk and the bank has to manage risk appetite as well as credit risk through the cycle. Keeping a close watch on origination costs, as well as the costs of servicing with the intention of driving ‘low-cost’ production, is essential. She says competition on value-destroying drivers, such as pricing, is not sustainable.Standard Bank Home Loans sees the NCA providing the necessary framework for responsible lending via minimum standards and, therefore, the onus is still on the lender to customise and execute prudent credit lending standards as is applicable to the different segments that it serves. But, for the industry to grow and move forward, Standard Bank sees restoring ‘value’ in the mortgage offering across the industry as essential. An important factor for future consideration is to improve on customer value propositions at the lower end of the markets and to actually meet the demand for housing-related funding requirements in this sector. Unconventional banking products such as more untitled dwellings than titled should be considered, since alternative solutions including mortgage finance is not always the appropriate offering.Ntombela says the growing affordable housing market sector would benefit from banks re-visiting origination costs, as well as reducing building costs and moving more towards environmentally friendly building methods and unconventional material to benefit the end-user. She says simplicity of product offerings is not only essential to this market, but to the whole home loan business and these will become more prominent in future. Similar to other major banks, Standard Bank offers 100% home loans where the loan amount is less than R1.5 million, and subject to the risk assessment of the customer, ensuring only qualifying applicants receive 100% bonds. This policy is regularly reviewed and may be amended at some point in the future. For lenders to manage their loan repayments, Standard Bank recommends a fixed rate option to avoid the impact that rising interest rates may have on customers’ monthly cash flow.Ntombela says to keep defaults at this end of the market to a minimum, prudent and proactive credit risk management remains essential. Applicant’s credit history is taken into consideration, complete with detailed income and expenditure information, confirming that loan repayments are affordable within their current budget. Repayment by debit order or salary deduction is compulsory, ensuring correct payments that have been adjusted to accommodate interest rate changes are made consistently, to minimise defaults. In addition, customers who fall into arrears are contacted speedily and, when necessary, are offered face-to-face educational sessions where all available options are explored. Standard Bank Home Loans offer credit life insurance to protect customers against default in the event of a variety of life events, such as disability, death, dread disease or retrenchment. In combating the effects of the economic downturn possibly resulting in repossessed homes, Standard Bank pre-empted a potentially high-risk situation in the early stages by introducing a rehabilitation programme for customers unable to honour their home loan commitments. The benefit of this programme is that customers were able to structure payments based on their personal circumstances thereby avoiding an adverse credit rating or having their home repossessed.Standard Bank strongly encourages its clients to contact the bank at the earliest stages of experiencing financial difficulty in meeting their debt obligations. This enables the bank the opportunity to assess the requirements and timeously structure a deal that meets the requirements of both customer and bank, minimising possible foreclosure. About the future of affordable housing funds, Ntombela says commercial banks have to look at alternative non-traditional methods to assist with affordability, and assisting customers in building a credit history. Such funds may become common in the future as more institutions will review its offerings beyond end-user finance, extending the credit eligibility of potential customers.Article courtesy of
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